Brexit: a good time to arbitrate?

Posted on 16 May 2018

Brexit: a good time to arbitrate?

Despite all of the advantages of arbitration, many contracts default to the resolution of disputes by the English courts, even when both parties are based out of the jurisdiction.

A judgment given in the courts of one EU member state is enforceable in the courts of another member state, by dint of Regulation (EU) 1215/2012, the so-called Recast Brussels Regulation.  Whilst the politicians on all sides attempt to hammer out a Brexit deal on the "big picture" issues such as the Irish land border, other perhaps less eye-catching but nevertheless important issues such as the cross border enforcement of judgments have slipped below the radar.

For any commercial enterprise doing business in Europe and beyond, this is a matter of great importance. If the UK leaves the EU on 29 March 2019 without a comprehensive deal there is a distinct possibility that there will be difficulties, expense and delay in enforcing an English judgment in some EU27 member states.  On the basis that business hates uncertainty, is now the time for businesses to be considering arbitration in place of litigation when drafting their contracts?

The mutual recognition of arbitral awards is governed not by a piece of EU law but by the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the "New York Convention"), which provides that an award made by an arbitral tribunal in one convention state is enforceable in any of the other 158 convention states.

Whilst an English judgment is only enforceable as of right in other EU member states – for however long that lasts – plus a handful of Commonwealth jurisdictions, an arbitral award should be enforceable in jurisdictions such as the USA, Russia, China and Japan, as well as EU member states.

It has long been the case that arbitral awards made in London were enforceable in more jurisdictions than a judgment of the English court.  As matters currently stand, it ought not to make any difference if a claimant seeks to enforce an arbitral award or an English judgment in another EU member state.  However, if the Recast Brussels Regulation no longer applies to the UK post 29 March 2019, and no alternative solution is found, arbitral awards will continue to be enforceable in EU member states, whereas the position in relation to judgments of the English court will be less clear cut.

This is, of course, a doomsday scenario, as the Government wishes to reach an agreement with the EU which will allow for continued cross-border civil judicial co-operation on a reciprocal basis.  That said, in the current absence of such an agreement it is a possibility that simply cannot be ruled out at present.

What, in light of current and rapidly changing circumstances, should commercial parties be doing about the dispute resolution clauses in their agreements?  As ever, the choice between litigation and arbitration depends on various factors and there is no universal solution.  However, if the enforceability of the final decision is the number one priority, and enforcement of that decision against a counterparty holding assets in the EU is a realistic possibility, this may be the time to revisit dispute resolution provisions and consider arbitration. 

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